This document provides an overview of key economic concepts including: - The three main types of economic systems: capitalism, socialism, and mixed economies. - Microeconomics focuses on individual decision making units while macroeconomics analyzes aggregates and overall economies. - Consumer equilibrium refers to the optimal combination of goods that maximizes a consumer's utility given prices and income constraints. - The production process and costs are analyzed using concepts like the laws of returns, costs curves, and factor inputs. - Markets, prices, revenues, and elasticities are discussed from the perspectives of producers and consumers.

1. ECONOMICS FOR ENTREPRENEURS by : DR. T.K. JAIN AFTERSCHO ☺ OL centre for social entrepreneurship sivakamu veterinary hospital road bikaner 334001 rajasthan, india FOR – PGPSE PARTICIPANTS mobile : 91+9414430763

2. What is an economic system ? It is a system of government – where the overall economic policies of the government are synchronised around certain philosophy : economic system is based on following ideas : 1. the extent of government intervention / regulation 2. extent of private sector participation and freedom to private sector 3. level of involvement of private sector and public sector in the economy

3. What are the features of capitalism? The USA is an ideal model of capitalism : you can see it has following characteristics : 1. laissez faire – almost complete freedom to private sector 2. very high inequality between rich and poor – due to market forces 3. market forces determine production and condumption – producers produce what consumers demand

4. What is consumer sovereignity ? Consumer is the king in capitalism consumer is the king – here producers have to produce what consumers demand and they will have to satisfy consumers

5. What is aggregative economics? The meaning of aggregate is sum of different parts. Thus aggregative economics is economics which study the phenomenon at the aggregate level. It is also called Macro-economics. Here we study the collectives like national income etc. As against this micro economics studies only individual firm and studies variables like pricing by firm

6. Is economics a normative science ? Yes – as per scholars like Robbins etc. Normative means what is ideal – so economics suggests ideal means of economic system. It not only studies the existing system but also suggests what should be done.

7. What is utility ? The capacity of goods to satisfy a consumer is called utility it differs from consumer to consumer. Can it be measured : as per cardinal utility approach – yes – it can be exactly measured and quantified – as per ordinal utility approach – yes – but it can only be ranked – you cant quantify it.

8. What is total, average and marginal utility ? Suppose you eat 1 Roti and get satisfaction of 12 units, your total utility (TU), Marginal Utility (MU), and average utility (AU) are all same = 12. Now suppose you eat one more Roti and get satisfaction of 4 units from this. Now your TU is 16, and AU is 8 (average is obtained by dividing TU by number of units). Now your MU is 4 (MU means utility from last unit consumed). Now you eat one more Roti and get 0 unit of satisfaction. Now your TU is 16, AU is 5.3 and MU is 0. Now you eat one more Roti for -4 units of utility. Now you TU is 12, AU = 3, MU = -4. (ideally a consumer will stop – when it goes into negatives) TU curve is always going up until MU is positive, AU& MU curve are falling.

9. Who said economics is study of distribution of wealth Answer : Ricardo (Adam Smith only focussed on creation of wealth).

10. Who said economics is study of welfare aspects ? Pigou : where welfare is related to money – there is economics

11. Who said the economics is not study of just wealth but study of well-being of society Marshall

12. What is law of supply ? Producers will produce and sell more when prices increase and will produce and sell less when prices fall. (it is opposite of law of demand – which says consumers will demand more when prices fall and vice versa).

13. What is elasticity of supply ? Elastic means speed and direction of response if you increase price and immediately there is increase is supply, you can say that supply is elastic, if you decrease price and immediately there is decrease in supply, you can say it is elastic. But if there is no change in supply in response to change in price, the supply is in-elastic. It is measured by the following formula : % change in supply of quantity / % change in price

14. What is elasticity of demand? Elastic means speed and direction of response if you increase price and immediately there is fall in demand, you can say that demand is elastic, if you decrease price and immediately there is increase in demand, you can say it is elastic. But if there is no change in supply in response to change in price, the demand is in-elastic. It is measured by the following formula : % change in demand of quantity / % change in price

15. What are factors of production? All those things which are used in production process are called factors of production. Some of the factors are : land, labour, capital, technology, entrepreneurship etc. However, for simplicity, we combine them into only two factors – labour and capital.

16. What is law of equi-marginal utility ? It is assumed that consumer is rational (wise, and able to differentiate). Consumer selects each item of consumption very carefully and tries to ensure that the marginal utility of each item consumed is equal. The consumer tries to ensure that the marginal utility of each item is equal. This is a rational process.

17. What is the law of variable proportions ? It is related to law of production in the short term. There are two factors of production : Labour and Capital It says that in the short term, one factor (Capital) is constant and other factor (labour) is variable and different levels of production combinations are possible due to change in labour. We can have increasing, constant or decreasing returns (three types of returns). Thus we can find an ideal combination of factors of production. It can be possible in long term also – when there is one ideal combination - which give best production. But generally , we talk about it in short term reference.

18. What is the law regarding constant returns ? As against the law of variable proportion, the law of constant returns assumes that there is same return. It is related to long term. It assumes that in the long run all the combination of various production possibilities give you same ideal point. In long term, variable returns is also possible as per previous concept.

19. Define the concept of economies of scale This is related to law of variable proportion. As per variable proportion, we say that you can have different production economies at different level. Why is it so ? It is due to some factors – some internal and some external. These factors either facilitate or hinder productivity – if they facilitate, there is economy of scale – if they hinder – there is diseconomies of scale.

20. What is internal economies ? The factors which are internal to the organisation, are called internal factors. These factors facilitate the productivity process and thus they contribute to economies of scale. These factors are : 1. administration 2.advertising 3. production scale 4. supervision 5. inventory management 6. training and development, 7. research and development etc.

21. What are external economies ? These factors are external to the organisation and they may contribute to economies of the firm : they are : 1. transportation cost 2. specialisation 3. information 4. market share 5. access to new ideas, research, laboratories etc.

22. Why does average variable cost curve have a U-shape both in the short run and long run ? Variable cost = cost related to variable factors of production like labour According to law of variable proportion, with a given plant, returns to variable factors pass through three phases of increasing, constant and diminishing returns. Accordingly, AVC curve is a U-shaped one. In the initial stages, it slopes downwards with an increase in output. Thus we can have an ideal point – where the cost is minimum.

23. Differentiate between returns to scale and returns to a variable factor These are the two laws of production, one refers to short term and the other refers to long term. Returns to scale is related to long term (when all the factors are variable). Returns to a variable factor (or law of variable proportion is related to short term - when only one factor is variable).

24. What is consumer equilibrium? It is a psycholocial status about consumer – the consumer tries to spend money wisely. When the consumer is able to derive optimal satisfaction by spending mony on two products – this point is the point of our attention. Consumer equilibrium refers to the point, where the consumer is able to make a choice about combination of two products. This point may change with change in income / price of goods etc.

25. CONSUMER EQUILIBRIUM ... When consumers make choices about the quantity of goods and services to consume, we assume that their objective is to maximize total utility. In maximizing total utility, the consumer faces a number of constraints, the most important of which are the consumer's income and the prices of the goods and services that the consumer wishes to consume. The consumer's effort to maximize total utility, subject to these constraints, is referred to as the consumer's problem. The solution to the consumer's problem, which includes decisions about how much the consumer will consume of a number of goods and services, is referred to as consumer equilibrium. Thus it is a part of concept of utility.

26. How does consumer equilibrium change ? Consumer equilibrium changes with change in price, change in income of consumer etc Consumer equilibrium is directly related to consumer indifference curve. Consumer indifference curve shows that the cosumer is indifferent between two products. Suppose Pawan is indifferent between eating 4 Samosa or 4 Kachori and also between 3S+1K or 1S+3K and derives equal satisfaction from these options, then the combination of these points will give us Indifference curve.

27. What is difference between cardinal and ordinal utility? Cardinal theory : utility can be measured. Ordinal utility : we can only give grading of utility – but we cannot exactly quantify utility.

28. What are the concepts of total revenue, average revenue and marginal revenue of a firm. Suppose you sell 1 unit for Rs. 12, your total revenue (TR), Marginal revenue (MR), and average revenue (AR) are all same – 12. Now suppose you sell one more unit in Rs. 20, your TR is now 32, AR = (32/2)= 16, MR = 20. Now suppose you sell 3 rd unit in Rs. 8. What is your TR, MR, AR TR=40, AR=13.33, MR= 8 TR curve is always going up with quantity, AR & MR curve are constant in perfect market, but falling in imperfect market

29. What are the salient features of a socialist economy There are three types of economic systems : 1. capitalism = where market forces are allowed to play their role and there is minimum government intervention and emphasis on private sector and profit motive. 2. Socialism: where everything is regulated by government and there is equality of distribution of resources. Only public sector exists. 3. Mixed economy : both private sector and public sector (govt) play important role

30. What do you understand by market mechanism In capitalism, market forces play their own role. They decide about the prices and about other factors. Market mechanism include forces like total demand, total supply etc. It is not controlled by government in capitalism. In perfect market, market forces decide prices. Thus price is a point of equilibrium of demand and supply.

31. What is ISO-Product / isoquant? Suppose 3 units of labour and 30 units of capital give you same production as you can get from 20 units of labour and 4 units of capital, these two points can be put on a curve called ISOQUANT. Isoquant is a combination of all such points, on which combination of different factors of production give you same level of output. Iso =same, quant = production in quantity

32. What is least cost combination of factors of production? We can find a point where we can get optimal production, this point is called least cost combination of factors of production. You can find it on ISOQUANT also.

33. WHAT IS DIFFERENCE BETWEEN MICRO AND MACRO ECONOMICS ? Micro focuses on an individual, but macro focuses on the group of firms / group of individuals or complete nation / world. Micro focuses on individual problems, but macro focuses on major issues

34. What is the difference between static and dynamic economics ? Static econmics assumes that factors of production and resources are fixed, but dynamic economics assumes that these are changing.

35. What is cobweb theory? It is a part of dynamics, it assumes that the forces of demand and supply decide the point of equilibrium and therefore these forces play an importnat role.

36. Who says that the rules of economics are not firm as the rules of gravitation? Marshall

37. What is the basic model of national income? Y = C+I+G+ (X-M) Y = National Income C = consumption I = Investment G=Government expenditure x = Export M = Import

38. At consumption of 35 units, your satisfaction is 900 units, at consumption of 36 units, your satisfaction is 800 units, is it possible Yes – under diniminishing marginal utility – it is possible that you can have negative marginal utility – so here there is negative marginal utility of -100 Remember, it is within the perview of Cardinal Utility theory – (cardinal utility theory says that utility can be measured).

39. You derive equal satisfaction by eating 2 Kachori + 1 Malpua or alternatively : 2 Rosgulla + 2 Bikaneri Samosa. What economic theory is applicable here? LAW OF EQUI-MARGINAL UTILITY

40. WHO TALKED ABOUT CONSUMER'S RENT IN 1879? Marshall

41. Who talked about indifference curve for the first time? Hickks

42. What is indifference curve ? When a consumer is indifferent between two options, it is presented in the form of a graph and it is called indifference curve Each point on this curve shows combination of two commodities giving equal satisfaction. For example at Point X, Pawan gets equal satisfaction either he eats 10 Rosgulla or 10 Jalebi.

43. Example : In the above graph, you can see that each curve on the graph shows a level of satisfaction – which is again a locus of points.

44. What is consumer surplus? From 1 st unit, Pawan gets satisfaction of 10 unit, from second unit : 6 units of satisfaction from 3 rd unit he gets satisfaction of 2 units, but acually pays equal to 2 units for each. Thus his surplus is : (10-2) + (6-2) + (2-2) = 12 units. Thus Pawan has positive consumer surplus (difference between what he gets and what he pays).

45. Who says that money has static marginal utility ? Marshall but Hickks says that money's marginal utility is also changing

46. What are the exceptions of law of demand? As per law of demand – demand has inverse relation with price. Demand curve is convex to origin. . Exceptions are : 1. emergency 2. expectation of further rise / fall in price 3.Inferior goods (Giffin goods) 4. High priced / luxury goods 5. Conspicuous goods 6. Necessities 7. Ignorance

47. What are Giffin goods? These are inferior goods – for example Jawar is inferior goods for eating (in comparison to wheat), similarly second hand cloths are giffin goods in comparison to Ready Made Garments.

48. What is elasticity in demand ? % change in demand in response to % change in price. Suppose demand change 10% ,when there is 5% chnge in price, we can say that elasticity is 2 times (highly elastic demand).

49. What factors influence elasticity of demand ? Factors : 1. nature of commodity (necessities have inelastic demand, but normal goods have elastic demand). 2. Substitute goods (if there is no substitute goods, the demand may be inelastic), 3. possibility of postponement of consumption 4. Price 5. income level of consumer etc.

50. What is difference between positive and normative science Positive science : it states the problem as it is without any suggestions Normative science : it tries to solve the problems and give suggestion. It looks into the ideal conditions and tries to tell you what should be the ideal.

51. Who says : Economics is the study of nature and causes of wealth of nations ADAM SMITH

52. WHO SAYS : ECONOMICS IS THE SCIENCE WHICH STUDIES WEALTH J.B. SAY

53. WHO SAYS : “ECONOMIC WELFARE IS THE SUBJECT OF STUDY OF ECONOMICS. ECONOMIC WELFARE IS THAT PART OF SOCIAL WELFARE THAT CAN BE BROUGHT DIRECTLY OR INDIRECTLY INTO RELATION WITH THE MEASURING ROD OF MONEY

54. SOLUTION PIGOU (well known welfare economist)

55. Who says : economics is the study of human behaviour as a relationship between ends and scarce means which have alternate uses. Robinson

56. What are assumptions of consumer's surplus Demand can be measured law of diminishing marginal utility perfect competition static marginal utility of money independent goods etc. (other things remain same. )

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